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DeFi and NFTs: Signs of Growth and Speculation

Jul 27, 2021 · 4 min read

By Ashwath Balakrishnan, and Jeremy Ong

Market Update

After retracing a decent chunk of its rally last night, BTC has been pushing back up to the $38,000 mark. ETH is closely following BTC, as are other crypto assets. Overall, sentiment is recovering as the Fear & Greed index begins to rise out of a state of abject fear.

NFT + Gaming Outperforms And An 8x

  • Axie Infinity and AXS have been the talk of the town for the last month. AXS has greatly outperformed the broader crypto market, even creating momentum for other tokens in the same category. AXS, SAND, and FLOW have in particular had a fantastic July, but AXS’s outperformance versus SAND and FLOW is also remarkable.
  • Technically, only SAND is comparable to Axie as a play-to-earn crypto game that utilizes NFTs. But crypto runs on narratives, which allowed other tokens that are related to NFTs to find a strong bid. MANA and ENJ are up 29% and 21% respectively in July.

DEX Volume Picks Up

  • DEX volumes are still a way off from their May high, but the bright side is they just recorded their highest daily volume since May 26. Uniswap, the clear market leader, led the charge with nearly $3 billion of volume yesterday.
  • The resurgence of positive sentiment in the market is the single most important reason for yesterday’s volumes; the Crypto Fear & Greed Index broke above 30 for the first time in six weeks, though it is yet to break out of the “Fear” range it’s been stuck in for nearly three months. As crypto prices rose across the board in the last few days, the speculative mania that fueled DeFi’s growth could make a comeback. However, it’s important to note that the overall market structure still hasn’t recovered. So err on the aside of caution and don’t get (potentially) bull-trapped by the sudden positive sentiment in the market.

All-Time High in DeFi Loans

  • Another data point that leads us to think speculators are making a comeback is loans outstanding on major DeFi protocols, which just hit a fresh all-time high.
  • The majority of loans on taken on DeFi protocols are used to either lever up on certain tokens or to yield farm with. Either way, this is a signal that appetite for risk is coming back.
  • Notably, Aave and MakerDAO grew their market share through 2021. But in the past few weeks, Compound has increased its market share of the DeFi loan market.

ArtBlocks’ Recent Growth

  • ArtBlocks is a generative art platform that’s become very popular in the last few weeks. People minting ArtBlocks NFTs are basically minting unknown pieces of art, and they find out what art their NFT has on it after they’ve minted it.
  • The project has seen an uptick in usage off late as volume crossed 400 ETH earlier this month. The average sale price is also rising fairly fast, hitting over 7 ETH yesterday (per the last 25 sales). Speculators have been bidding up ArtBlocks NFTs in an attempt to re-sell at a higher price. But speculation aside, some of the artwork is actually very cool.

Notable Tweets

Goldman Sachs launches a blockchain company index.

 Illuvium announces AXS pools (stake AXS, earn ILV).

Well outlined criticism of DeFi’s most popular growth metric, “total value locked,” from the CoinMetrics team.

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